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Pillar Two Implementation

Implementation

Table of Contents

General

The Pillar Two GloBE rules will have the status of a common approach. As such, members of the Inclusive Framework (IF) are not required to adopt them (ie they are not compulsory), but, if they do, they will implement and administer the rules in a way that is consistent with the outcomes provided for under Pillar Two.

Members of the IF are required to accept the application of the GloBE rules applied by other members, including agreement on the rule order and the application of any agreed safe harbors.

Both the IIR and UTPR will need to be implemented through domestic legislation. The OECD does, however, raise the possibility of the development of a multilateral instrument to facilitate the coordination of the GloBE rules that have been implemented by IF members.

The STTR, as a treaty-based rule, can only be implemented through bilateral negotiations and amendments to individual treaties or as part of a multilateral convention.

The OECD provides that members of the IF that apply nominal corporate income tax rates below the STTR minimum rate will implement the STTR into their bilateral treaties with developing country members of the IF when requested to do so.

A model treaty provision to give effect to the STTR is planned be released in 2022, along with a multilateral instrument for its implementation. 

The original timeframe was that Pillar Two should be brought into law in 2022, with the IIR coming into effect in 2023 and the UTPR in 2024.

International Implementation

The OECD published Model GloBE rules in December 2021 and Commentary in March 2022.  The OECD will also address the issue of how the GloBE Rules will co-exist with the US GILTI rules.

The OECD will also produce a detailed implementation framework, focusing on administrative, compliance and coordination issues. This is currently subject to a public consultation.

On December 20, 2022, the OECD issued the Safe Harbours and Penalty Relief: Global Anti-Base Erosion Rules (Pillar Two), which includes details of two safe harbours and penalty relief for the Pillar Two GloBE rules

The European Commission released a Proposed Directive based on the model GloBE rules on December 22, 2021. Once approved, EU Member States will be required to transpose the final version of the directive into domestic law for implementation in 2024.

This was originally held up by Poland. They later relented but Hungary then raised objections in June 2022.

On June 30, 2022, the French Finance Minister announced that Pillar Two will be implemented with or without Hungary.

On September 9, 2022, Germany, France, Italy, Spain and the Netherlands issued a joint statement stating that if agreement is not reached on Pillar Two in ‘the next few weeks’ they will push forward domestic implementation of the Pillar Two GloBE rules ‘by any possible legal means’ in 2023.  Belgium subsequently announced it is willing to participate in the enhanced cooperation procedure to implement Pillar Two GloBE Rules.

On December 12, 2022, the EU issued a press release stating that ‘the ambassadors of EU member states decided to advise the Council to adopt the Pillar 2 directive, and a written procedure for the formal adoption will be launched.’

On December 15, 2022, the Council of the European Union formally adopted the EU Pillar Two directive. Member states will have to transpose the directive into national law by the end of 2023. 

On December 22, 2022 the EU Global Minimum Tax Directive was published in the EU official journal as Council Directive (EU) 2022/2523 of 14 December 2022. Date of entry into force: 23 December 2022. 

Use our Pillar Two Tracker to keep up to date with the latest developments. 

Legislation

Country ImplementationAnalysis
United KingdomThe UK published draft legislation for the Pillar Two GloBE rules (which it calls the ‘Multinational Top-Up Tax‘) in July 2022. A Review of the UK Draft Pillar Two Legislation
South KoreaOn December 31, 2022, South Korea passed Law 19191 to amend the International Tax Adjustment Act to provide for the Pillar Two Global Minimum Tax from January 1, 2024.

On July 22, 2022, South Korea released a draft law to implement Pillar Two.
First Domestic Pillar Two Global Minimum Tax Law Enacted

Analysis of South Korea’s Draft Pillar Two Law

English Translation of South Korean Pillar Two Law
SwitzerlandOn August 17, 2022, the Swiss Federal Council issued a draft decree for the implementation of Pillar Two.Analysis of Switzerlands Draft Pillar Two Decree
EUThe European Commission released a proposed directive based on the model GloBE rules on December 22, 2021.

On December 15, 2022, the Council of the European Union formally adopted the EU Pillar Two directive. Member states will have to transpose the directive into national law by the end of 2023.

On December 22, 2022 the EU Global Minimum Tax Directive was published in the EU official journal as Council Directive (EU) 2022/2523 of 14 December 2022. Date of entry into force: 23 December 2022. 
Review of the Draft EU Pillar Two Directive

Poland Withdraws its Veto and the EU Pillar Two Directive is Adopted
NetherlandsThe Netherlands Published draft legislation for Pillar Two on October 24, 2022.Key Takeaways From the Dutch Draft Pillar Two Legislation

Map: Pillar Two Implementation

Analysis

CountryAnalysis
African Tax Administration Forum (ATAF)ATAF Releases Draft Domestic Minimum Tax Legislation
AustraliaAustralia’s Consultation on Pillar Two
BahamasSee our Pillar Two Developments Tracker
CanadaSee our Pillar Two Developments Tracker
ChinaA Review of China’s Tax Law From a Pillar Two Perspective
EstoniaPillar Two GloBE Rules and Estonia’s Distribution Tax
European UnionFull Steam Ahead For EU Pillar Two Implementation and
Review of the Draft EU Pillar Two Directive
Hong KongSee our Pillar Two Developments Tracker
IndiaIndia’s Tax Regime after Pillar Two: Key Risks and Opportunities
IndonesiaIndonesian Regulation Signals Global Minimum Tax Implementation
See our Pillar Two Developments Tracker
IrelandIrish 2022 Finance Bill Changes for Pillar Two
IsraelKey Risks for MNEs Operating in Israel after Pillar Two
JapanSee our Pillar Two Developments Tracker and Japans Pillar 2 Proposals in its 2023 Tax Reform Outline
JerseyJerseys approach to Pillar Two implementation
LiechtensteinLiechtenstein to Consult on Pillar Two Global Minimum Tax
LuxembourgLuxembourg Private Debt Funds and Pillar Two
MalaysiaMalaysia to Implement Global Minimum Tax & QDMTT in 2024
MaltaSee our Pillar Two Developments Tracker
MauritiusMauritius 2022 Finance Act includes Pillar Two Top-Up Tax
MexicoSee our Pillar Two Developments Tracker
New ZealandNew Zealand’s Approach to Pillar Two
NigeriaThe Impact of Nigeria’s Rejection of Both Pillar 1 and 2
OmanOman’s Tax Regime and Pillar Two
ParaguaySee our Pillar Two Developments Tracker
PhilippinesThe Philippines Tax Regime and the Pillar Two GloBE Rules
South AfricaSee our Pillar Two Developments Tracker
SingaporeA Pillar Two Review of Singapore’s Tax System
South KoreaFirst Domestic Pillar Two Global Minimum Tax Law Enacted
Analysis of South Korea’s Draft Pillar Two Law
English Translation of the South Korean Pillar Two Law
The South Korean PE Risk Under Pillar Two
SwitzerlandAnalysis of Switzerlands Draft Pillar Two Decree
TaiwanA Pillar Two Review of Taiwan’s Tax Regime
Taiwan To Increase Its Domestic Minimum Tax Rate From 2024
ThailandThailand’s Tax Incentive Regime and Pillar Two
The NetherlandsKey Takeaways From the Dutch Draft Pillar Two Legislation
UAEUAEs New Corporate Tax Law and Pillar Two
United KingdomA Review of the UK Draft Pillar Two Legislation and UK Pushes Forward With Pillar Two
United StatesU.S Updates its GloBE Impact Document
VietnamThe Thorny Issue of Pillar Two in Vietnam